Nike’s first step back: a wholesale-fueled beat meets a margin reality check

A year into Elliott Hill’s return as chief executive, Nike has finally posted an uptick in sales—albeit a modest one. Hours after the bell on Tuesday, September 30, the company said first‑quarter fiscal 2026 revenue rose 1% to $11.72 billion and earnings came in at $0.49 a share, both ahead of subdued expectations. Shares climbed in after-hours trading as investors welcomed the beat and signs of inventory clean‑up. The relief, however, was tempered by a steeper‑than‑expected squeeze in profitability. Nike’s gross margin fell to 42.2%, the bill for a strategy shift that is leaning back into wholesale distribution just as U.S. tariffs raise product costs. (reuters.com)

The top‑line beat matters less than where the growth came from—and what it cost. Nike’s rebound this quarter was led by external retail partners, not its own channels. Wholesale returned to growth while Direct-to-Consumer (DTC) and digital continued to contract, a reversal of the company’s DTC‑first experiment that defined the pre‑2024 era. Management’s message to Wall Street was cautionary: the recovery “will not be linear.” In practical terms, that means quarterly noise as the mix resets, margins rebuild, and China remains a drag. (marketwatch.com)

Gross margin fell 320 basis points year over year to 42.2%, pressured by heavier discounting and a jump in estimated tariff costs that management now pegs at about $1.5 billion for the year. For context, a year ago in the comparable quarter Nike posted a 45.4% margin—so the erosion is both sharp and recent. While the sales beat grabbed headlines, the profit engine remains under strain, and it will be the decisive metric for whether this turnaround is durable. (reuters.com)

Tariffs are only part of the story. The other piece is channel mix. Wholesale partners drive reach and help move inventory faster, but they don’t deliver the same unit economics as full‑price selling in Nike’s own stores and apps. That tradeoff showed up clearly this quarter: a healthier revenue line, but a thinner gross margin line. Management can offset some of this with product newness and tighter allocations, yet it will take multiple seasons—not months—for a cleaner margin structure to reappear. (reuters.com)

If 2017–2021 was the era of “go direct,” 2025 is the year Nike pragmatically re‑embraces the middle of the marketplace. Wholesale revenues grew mid‑single digits in the quarter while Nike Direct fell 4% and digital declined 12%, putting external partners squarely back in the growth seat. The company has even restarted a direct relationship with Amazon in the U.S.—a symbolic reversal after cutting ties in 2019—and is deepening shop‑in‑shop concepts with sneaker specialists like Foot Locker. This is a clear strategy: regain traffic, broaden distribution for new performance franchises, and rebuild brand heat in multi‑brand environments. (reuters.com)

The strategic rub is arithmetic. More wholesale mix typically means lower gross margins, and promotional help for partners to clear legacy product can make that pressure worse in the near term. Nike’s task is to use this channel reset to re‑accelerate full‑price sell‑through—then gradually shift the mix back toward richer direct economics as demand normalizes.

Under the hood, the quarter said as much about Nike’s portfolio as it did about channels. Apparel outgrew footwear, rising about 7% while footwear dipped roughly 1%—a reminder that the innovation pipeline is rebalancing after a long run of lifestyle‑led sneaker cycles. The glaring weak spot was Converse, where revenue fell 27%, underscoring the work ahead to refresh that brand’s assortment and relevance across regions. (investors.com)

None of this means Nike’s performance engine is stalled. Management has been re‑centring the company on core sports—running, basketball, training—after years when ‘classics’ like Air Force 1 and Dunk did too much heavy lifting. If the wholesale reset gives those new performance franchises the oxygen they need heading into holiday and spring, the margin math can start to look better by the back half.

Greater China declined again, marking a fifth consecutive quarterly drop. Competitive intensity from local and newer global brands is still rising, and the company’s own product and storytelling cadence has yet to fully reconnect with consumers. Nike’s comeback case increasingly hinges on stabilizing China even as North America leads the operational rebound. Until the region turns, the group’s growth and margin ambitions will stay capped. (reuters.com)

It’s not only domestic rivals like Anta and Li‑Ning vying for wallet share; in Western markets, new performance darlings such as On and Hoka are reshaping consumer expectations around cushioning, fit and feel. Nike doesn’t need to win every trend cycle, but it does need to reassert visible leadership in performance innovation to pull pricing power back into the model. (ft.com)

Guidance into the second quarter was intentionally cautious: management expects a slight year‑over‑year decline in revenue as it manages channel mix, promotional intensity and product transitions. The priorities are clear. First, watch the gross margin line for early evidence that discounting is easing and tariff pass‑through is holding. Second, look for Direct and digital to sequentially improve—flat would be a moral victory in the near term. Third, monitor wholesale order books and sell‑through; partners can stoke brand heat, but the benefit fades if margin assistance persists. Finally, Greater China: even small green shoots would be disproportionately meaningful to the multi‑year thesis. (reuters.com)

This quarter answers one question and raises another. Answered: Nike can rekindle growth with a pragmatic pivot back to partners while it retools product for sport. Raised: Can the company rebuild margins fast enough amid tariffs and a less profitable channel mix? The near‑term path is likely choppy—management is explicit about that—but the playbook is straightforward: use wholesale to re‑ignite demand, then earn back direct economics through product newness and tighter supply. If gross margin stabilizes and China stops shrinking, today’s beat could mark more than just a pause in the slide; it could be the first true step of a longer climb. (reuters.com)